Investing requires (a) enough skepticism to carefully vet ambitious new ideas and (b) enough optimism to take even the craziest ideas seriously. How to actually maintain this balance over the long-term, though, is the key. Paul Graham, the venture capitalist, explores this concept artfully in his recent essay, “Crazy New Ideas.” His perception here is that there’s an asymmetric upside to the craziest new ideas, but only when the person proposing those ideas can’t be so easily dismissed. He writes: “Anyone who has studied the history of ideas, and especially the history of science, knows that’s how big things start. Someone proposes an idea that sounds crazy, most people dismiss it, then it gradually takes over the world.”
“Most implausible-sounding ideas are in fact bad and could be safely dismissed. But not when they’re proposed by reasonable domain experts. If the person proposing the idea is reasonable, then they know how implausible it sounds. And yet they’re proposing it anyway. That suggests they know something you don’t. And if they have deep domain expertise, that’s probably the source of it. Such ideas are not merely unsafe to dismiss, but disproportionately likely to be interesting. When the average person proposes an implausible-sounding idea, its implausibility is evidence of their incompetence. But when a reasonable domain expert does it, the situation is reversed. There’s something like an efficient market here: on average the ideas that seem craziest will, if correct, have the biggest effect. So if you can eliminate the theory that the person proposing an implausible-sounding idea is incompetent, its implausibility switches from evidence that it’s boring to evidence that it’s exciting.”
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A glimpse at our holographic futures
This week Google presented its latest holographic technology, which, scientifically speaking, is pretty trippy. Writing for Wired magazine, reporter Lauren Goode gets the inside scoop of what our collective augmented reality future may look like. “Call it hyper-telepresence,” she writes. “Call it whatever you want. Either way, it’s pretty wild.”
“The imagery is remarkable, and the visuals are complemented by spatial audio. What I’m actually looking at is a 65-inch light field display. The Project Starline booths are equipped with more than a dozen different depth sensors and cameras. (Google is cagey when I ask for specifics on the equipment.) These sensors capture photo-realistic, three-dimensional imagery; the system then compresses and transmits the data to each light field display, on both ends of the video conversation, with seemingly little latency. Google applies some of its own special effects, adjusting lighting and shadows. The result is hyper-real representations of your colleagues on video calls.”
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A new book on noise, decision-making, and the limits of human judgement
Daniel Kahneman, author of Thinking, Fast and Slow, has published a new book about noise. Kahneman—one of my favorite researchers— has an extraordinary knack for simplifying complex subjects—while simultaneously taking simple subjects and exploring their complexity. This new book is no exception. Jason Zweig, TheWall Street Journal columnist (and one-time Kahneman research associate) writes that Kahneman’s latest work “shows that decisions by people and organizations are far less consistent and more variable than we think. Every investor needs to take account of that; otherwise, your long-term results will always be hostage to short-term whims and circumstances.”
“By temperament, training or both, some analysts and investors are more optimistic; others, more pessimistic. They will draw drastically different conclusions. That’s what the authors call “level” noise, or persistent deviation from the average opinion across many people. Individuals can also differ from their own typical view. You might tend to be more bullish than average—but have a pattern of becoming especially enthusiastic whenever a company introduces a new product or whenever Elon Musk tweets. That’s what Prof. Kahneman and his colleagues call “pattern” noise. Finally comes “occasion” noise, driven by random variations in moods, situations and whatever happens to grab your attention. Reading about a natural disaster could make you momentarily more risk averse. Being angry might prod you into buying even more of a falling asset, as many holders of GameStop Corp. stock or dogecoin could tell you.”
“And finally the most important, and rarest, trait of all: The ability to live through volatility without changing your investment thought process. This is almost impossible for most people to do; when the chips are down they have a terrible time not selling their stocks at a loss. They have a really hard time getting themselves to average down or to put any money into stocks at all when the market is going down. People don’t like short term pain even if it would result in better long-term results. Very few investors can handle the volatility required for high portfolio returns. They equate short-term volatility with risk. This is irrational; risk means that if you are wrong about a bet you make, you lose money. A swing up or down over a relatively short time period is not a loss and therefore not risk, unless you are prone to panicking at the bottom and locking in the loss. But most people just can’t see it that way; their brains won’t let them. Their panic instinct steps in and shuts down the normal brain function.”
“The IBM Chinese typewriter was a formidable machine—not something just anyone could handle with the aplomb of the young typist in the film. On the keyboard affixed to the hulking, gunmetal gray chassis, 36 keys were divided into four banks: 0 through 5; 0 through 9; 0 through 9; and 0 through 9. With just these 36 keys, the machine was capable of producing up to 5,400 Chinese characters in all, wielding a language that was infinitely more difficult to mechanize than English or other Western writing systems.”
“But being so dependent on our devices also comes at a cost. Having to socialize almost entirely online has meant most of us now know far more than we’d like to about our neighbors’ and old classmates’ bad political opinions — not to mention their clandestine indoor parties and questionable pandemic vacations.”
“My point being, if you read the headlines, then there will always be a reason not to invest in something. Even after a decision to take a stake in a company, there will always be a reason to sell. It’s almost as if headlines and media cycles are designed to capture the attention of the reader. Conviction is born from understanding what you own. An investor’s reaction to an earnings report, an acquisition, or some other event, should first come from their own independent thought.”
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Welcome to The Nightcrawler, a weekly collection of thought-provoking articles and analysis on technology, innovation, and long-term investing. The Nightcrawler is published every Friday evening by Eric Markowitz, Nightview Capital’s Director of Research. Subscribe below. In this evening’s email… Quote of the week: “Doubt is not a pleasant condition, but certainty is absurd.” Voltaire Embracing uncertainty as a competitive edge In …
